Don’t Commit New Money To This Area Until It Pulls Back
There is absolutely nothing wrong with what we are seeing. Just a persistently
slow move up towards the early January highs.
It is a positive that the DOW and S&P have moved above near-term
resistance. It is a positive that the MIDCAP 400 is above its yearly high…
not only a yearly high but an all-time high. It is a positive that the SMALL
CAP 600 is at yearly highs. Â
Last time, we told you to watch certain support levels. Not one was breached,
thus leading to this latest rally. In fact, we told you to watch the NASDAQ
2052…which missed by a point. While the DOW still lags, if the S&P can break
out above old highs at 1229 and the NASDAQ moves above 2100, it will just add
some fuel to the move…as you can bet the shorts will squirm on any
breakout. Notice though the NASDAQ is not even close to it’s yearly highs. The
other major index that is still lagging is the TRANSPORTS. The TRANSPORTS had
better action in the past week but nothing to get excited about.
We also like that NEW HIGHS continue to expand. We also like that on a daily
basis, the A/D continues to act well. We like that more and more stocks are
participating.
That said, this market has confounded for months. Every time it has teases the
upside, it topped and turned down. Every time it teased the downside, it put
in a low and turned up. With markets overbought and some sectors stretched, we
wouldn’t bet against a pullback soon but will let the market decide.Â
More importantly right now, here are some important thoughts
you need to be aware of:
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Most of last week’s move in the indices was on the back of the rejuvenation
of the CYCLICAL/COMMODITY areas as they are now bottoming and coming back up
the right side of their bases. At the very least, we would not be short any
of these areas. They were great shorts at the outset of this year.
OILS continued their recent parabolic move. We have no idea if there is more
of this straight up move to go. What we do know is that risk has picked up
here as many names are stretched above the norm. If you own, we think you
continue to own but not sure we would be adding here until they calm down and
pull back a bit. OIL prices did hit a new high Friday.
HOUSING also continued its recent move. This is another group that is
stretched to the upside. In fact, we saw some distribution into the pop on
Friday off of KBH’s earnings. We would own but not commit too much new money
to this area until it also calms down and pulls back a bit.
It is important you recognize that the sentiment environment is less than
thrilling. It is good news that specialists continue to short at a very low
clip but…PUT/CALL figures have been quite low…the VIX and VXN remain at
multiyear highs…and bulls are now swamping the bears in the newsletter
survey. This is something that bears watching.
Gary Kaltbaum